Boris Johnson’s £5 billion comes nowhere near to giving the economy the boost that is required after a shock of the magnitude of the coronavirus epidemic.
First published in June 2020.
The part time Prime Minister did some work on Tuesday. He gave a speech in the English Midlands annoucing his big plan to boost the UK economy so it can recover from the effects of the pandemic. Although touted as a big speech, as major announcements, as the British equivalent of Franklin D. Roosevelt’s American New Deal in the 1930s, the speech and its contents can handily be summarised in one short word. That word is ‘meh’.
The speech promised £5 billion in investment, but critics were quick to point out that much of this is not new money. It’s simply existing investment plans which have hurriedly been rebranded. This is despite the fact that the UK has suffered the greatest economic ill effects from the epidemic of any state in Europe.
The International Monetary Fund has predicted that the UK will suffer an economic contraction of 10.2% this year. The UK Government’s own figures published this week showed that the UK economy contracted by 2.2% in the first three months of 2020 alone. It was the sharpest fall in economic activity for over 40 years. It’s going to take a lot more than £5 billion in rebranded existing commitments to get the UK out of the hole into which the carelessness of the Conservatives has consigned it.
To put the UK Government’s much touted investment plan into context, £5 billion is less than one tenth of the amount that’s being spent on HS2, the high speed rail link between London and Birmingham. It’s a quarter of the cost of London’s Crossrail project.
Compared to the economic damage done by the pandemic, the investment that is being promised by Boris Johnson amounts to a sticking plaster on a broken leg.
£5 billion comes nowhere near to giving the economy the boost that is required after a shock of the magnitude of the epidemic. Germany, which has succeeded in coming through the crisis with far fewer deaths and far less economic damage than the UK, has announced a new economic stimulus plan worth €130 billion – approximately £118 billion. The sum works out at some 4% of the entire German economy. The German Economy Minister Peter Altmaier described the plan as “the biggest stimulus program of all time”. Unlike the boosterism of Johnson, he actually means it and he’s going to put the government’s money where his mouth is. France has already announced €110 billion of economic support for the French economy.
These figures dwarf the paltry amount promised by Boris Johnson today. They represent the kind of government spending on investment and infrastructure which is going to be required to ensure that a depression is avoided.
Scotland’s share of the investment money promised by the British Government will work out at approximately £500 million. That’s but a fraction of the £6 billion plan that the Scottish Government announced last week, a plan which requires the UK Government to agree to extend the borrowing powers of the Scottish Parliament. Which is something that it’s not going to do. Given the relative sizes of the German and Scottish populations, the Scottish Government’s planned recovery borrowing and investment program would be of a similar magnitude to the German plan. Instead we’re going to be consigned to the slow lane and will get what the British Government decides. It’s going to be nowhere near what it required to give the Scottish economy the boost it needs in order to avoid large scale job losses and lasting economic damage. This must be one of those union benefits that they keep telling us about.
This is as clear an example of how Scotland’s growth and potential is being held back by the British state as you’re going to get. As an independent country Scotland would not be constrained by the need to ask Westminster’s permission – only to be turned down – in order to develop and implement an economic stimulus and recovery plan such as every other independent European nation has been able to do. The Scottish Government could have borrowed the money that it needed, just as other governments borrow money, or could have created it by fiat if Scotland had its own currency, and used that money in order to develop and grow the Scottish economy. The costs of borrowing would then be repaid by the increased economic activity and the increased revenues which the investment and stimulus program would generate.
Instead what’s going to happen is that Westminster will pass on the meagre £500 million or so in Barnett consequentials to Scotland and tell us that we’re getting a grant from the British taxpayer. The money will be added to the notional deficit that Scotland is told that it is encumbered with, and British nationalists will use it as yet more spurious proof that Scotland is too poor to look after itself. Already British nationalists are demanding to know how Scotland could have coped with the epidemic without the money ‘given’ to us by the British Government.
The truth is that the British Government hasn’t given Scotland anything at all. Any extra money will have to be repaid one way or another. All that the UK is doing is borrowing on the international markets, or borrowing from the Bank of England which is entirely owned by the UK Government, and then adding that money to the UK’s national debt. Watch out for the next set of GERS statistics, because they’re going to show that Scotland’s notional debt and deficit have increased substantially. British nationalists will crow about this and cite it as evidence that Scotland needs the UK. In fact it proves no such thing. All it proves is that governments need to borrow during a crisis. The point is not that governments need to borrow, it’s how that money is spent.
An independent Scotland could just as easily borrow for itself, then it would be in control of how much is required and how it is spent in order to maximise revenues and economic activity. That increased economic activity and the increased tax revenues that it generates for the Scottish Government allows the borrowing to be paid off. The choice for Scotland is not the choice between free money from the UK or independent penury. It’s a choice between being in control of Scottish Government borrowing and expenditure, or not being in control of it.
As a part of the UK Scotland will struggle to recover from the economic impact of this crisis. As an independent nation we’d be in charge of our own recovery efforts and could ensure that our economy received a stimulus package designed specifically for Scotland’s needs. We can have a British economic stimulus meh, or a Scottish turbo charged recovery.🔷
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